FTSE Close: US inflation data dents hopes for imminent Fed rate cut

Stock prices across London closed lower on Thursday after expectations for an imminent U.S. Federal Reserve interest rate cut were jolted by hotter-than-anticipated American inflation data.

The benchmark FTSE 100 index ended 1.0% lower, finishing the session at 7,576.59. The midcap FTSE 250 index fell 0.9% to close at 19,107.93. The AIM All-Share index of small-cap stocks slid 0.7%, closing at 744.72.

The losses came after U.S. inflation rose more than forecast in December, according to the Labor Department. The annual inflation rate accelerated to 3.4% last month, up from 3.1% in November and surpassing economists’ predictions. The core rate, which omits volatile food and energy costs, also topped estimates at 3.9% versus forecasts of 3.8%. While down from its peak of 9.1% in June, the data indicates inflation remains stickier than hoped on the path back to the Fed’s 2% target.

The higher inflation could impact monetary policy tightening plans, with markets now seeing a Fed rate cut as less likely at the U.S. central bank’s Jan. 31 meeting. Expectations had been building for a small cut to kick off what markets expect to be a year of easing, but traders are reassessing if the disinflationary trajectory will be more rocky.

Among individual movers, Whitbread led gainers on the FTSE 100 with a 2.3% advance. The Premier Inn hotel operator said sales grew 11% in its fiscal third quarter. Marks & Spencer fell 5.0% despite reporting strong holiday sales, as it pointed to surging costs from higher wages and business rates that could pressure profits.

On the FTSE 250, online reviews platform Trustpilot shot up 14%. The company expects 18% revenue growth in 2023 along with higher profitability, and also announced a £20 million share buyback program. Cybersecurity firm Darktrace added 8.9% after boosting its revenue and earnings guidance.

Small-cap Swiss iron ore pellet producer Ferrexpo with assets in Ukraine dropped 9.6% as disruption to operations amid the war with Russia resulted in a 50% plunge in quarterly commercial output.